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Is Gold Set To Rise In 2018?

Strengths

The best performing precious metal for the week was palladium, but it clocked in with a price decline of 1.41 percent. In an interview with Sharps Pixley’s Lawrie Williams, precious metals specialist Ted Butler said his analysis shows that, for at least the past nine months or longer, Goldman Sachs and JPMorgan Chase are taking 80 percent of all COMEX physical deliveries of gold and silver. Butler believes that someone would only take delivery if you thought the price was going to go up in value.

A Shariah-compliant gold ETF targeting Malaysian institutional investors will be made available by Affin Hwang Asset Management. The ETF was listed on the Kuala Lumpur stock exchange on Wednesday.

Traders are still reluctant to bet against gold even with impending tax cuts and rate hikes, thought to be negative for the yellow metal. Bearish positions on bullion futures and options were at a five-year low last week.

Weaknesses

The worst performing precious metal for the week was platinum, down 5.53 percent. Traders surveyed were overwhelmingly bearish ahead of next week’s Federal Reserve rate hike expectation. The world’s second biggest market for gold, India, reported a third consecutive month of decreased imports. Additionally, Australia’s Perth Mint reported gold sales of 23,901 ounces last month, about half of the prior month’s volume

David Govett, head of precious metals trading at Marex Spectron in London, said, “The rate hike is now looming and people are suddenly realizing that gold may not be the most attractive long position at the moment.” Although bullion is heading for the first back-to-back annual advances since 2012, traders have recently dented those gains, writes Eddie van der Walt of Bloomberg.

Online searches for “buy bitcoin” continue to far outstrip searches for “buy gold.” More and more investors are viewing bitcoin as the new gold—a new way to store money outside the control of any government or company.

Opportunities

Gold could trend higher in 2018 as real borrowing costs continue to be low in historical terms and fears of equity and bond correction encourage investors, reports Bloomberg. The yellow metal is set to rise marginally as real interest rates stay low and the dollar weakens, says Bart Melek, global head of commodity strategy at TD Securities. China’s gold consumption will continue to rise in 2018 following this year’s demand of over 1,000 tonnes, up from 975 tonnes in 2016. Zijin Mining is bullish on gold as the dollar is seen in a downward cycle. Central banks may add to gold reserves amid uncertainty in global currency system, reports Bloomberg. Commerzbank forecasts gold to average $1,325 in 2018 on the back of low or even negative interest rates and ongoing political uncertainty.

The next “Big Short” is coming as hedge funds prepare to bet against bitcoin. The introduction of bitcoin futures contracts at major hedge funds will make it easier to bet on a decline in the popular digital currency. And as bitcoin surges, nobody cares that about $90 million was hacked from coins Tether and NiceHash. Meanwhile, validating a transaction can cost as much as $20, and the market is currently illiquid with more buyers than sellers.

Contributing to the speculative nature of bitcoin is the fact that Coinbase now has 13.3 million users, more than Charles Schwab’s 11.7 users built up over decades, implying that digital currency investors lack understanding of the processes involved. Last month, someone moved 25,000 bitcoins worth around $159 million to an online exchange in preparation for selling. This demonstrates the potential volatility of about 40 percent of bitcoin being held by around 1,000 users. Since bitcoin is a currency and not a security, there are no rules against a trade where one group agrees to buy enough to push the price up then cash out in minutes, reports Bloomberg’s Olga Kharif. Lastly in bad bitcoin news, A new company, BIG Blockchain Intelligence Group, will be collecting users’ bitcoin data to try and address anti-money laundering (AML) statutes and selling your data to law enforcement.

Threats

One of the biggest companies in the S&P 500 Index, General Electric (GE), will be cutting 12,000 jobs as demand for gas turbines is down with customers turning toward renewable energy sources. Share prices fell to the lowest in six years on Wednesday, with the stock falling 44 percent in this year alone. A company this large having big troubles might indicate the economy is not as strong as thought. U.S. and European banks potentially face billions in loan losses with the unraveling of Steinhoff International this week when its share price fell 84 percent in three days as it was revealed it’s engulfed in an accounting scandal.

New tax reform will sharply reduce interest deductibility on tax returns, which will raise the effective cost of debt relative to cash flow and ultimately stifle companies to raise debt for buybacks. A sharp fall in buybacks will lower net U.S. stock purchases and lower bank lending and credit issuance, which will tighten liquidity. This comes at a time when U.S. corporate investment is at its lowest in history, according to a Macro Strategy Partnership report released this week.

Among the groups most negatively impacted by the latest tax reform bill include upper-middle class families in high-tax areas, graduate students, government workers and public school teachers. Many members of these groups lean Democrat, which Republicans are well aware of, writes Sahil Kapur of Bloomberg. This poses the question of what will happen to high-tax states such as New York and California, where taxes could no longer be deductible from federal tax returns. When Kansas implemented similar tax cuts in 2012, the economy slowed, saw lower than expected revenues and was forced to make huge cuts to government programs—a priority of the current administration. Economic policy analyst Stephen Moore, who advised Donald Trump’s campaign on tax policy, said, “It’s death to Democrats.” But not so fast: Democrats, after calculating their new tax burden, could easily decide it is no longer affordable to stay in high-tax burden states as California, New York and New Jersey, and move elsewhere. Unexpectedly, then, “red states” might see an influx of many new Democrat-leaning residents, which would disrupt electoral precinct maps.

Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. Under his guidance, the company’s funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of “The Goldwatcher: Demystifying Gold Investing.” Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association. Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications. Visit the U.S. Global Investors website at http://www.usfunds.com. You can contact Frank at: editor@usfunds.com.